indiana economic outlook - in.gov · 12/15/2016 · indiana economic outlook presented to: indiana...

© 2016 IHS Markit. All Rights Reserved.© 2016 IHS Markit. All Rights Reserved.

Indiana Economic Outlook

Presented to:Indiana State Budget Committee

December 15, 2016

Tom Jackson, Principal Economist, US Regional

© 2016 IHS Markit. All Rights Reserved.

President-elect Trump’s domestic policy platform

• Reform personal income taxation, reducing the number of brackets from seven to three (12%, 25%, and 33%)

• Reduce the corporate income tax rate from 35% to 15% and apply the 15% rate to pass-through businesses

• Repeal and replace the Affordable Care Act

• Increase spending on infrastructure and defense

• Freeze hiring of federal employees to reduce workforce by attrition

• Cancel executive actions taken by President Obama

• Ease restrictions on energy production, allow pipeline projects to move forward, and open federal lands for energy exploration

• Change Dodd-Frank financial regulations

2

Source: IHS Markit © 2016 IHS Markit


Policy changes in the December forecast

• Personal income tax reforms that lower the average effective tax rate from 21.0% to 19.5%

• A reduction in the statutory corporate income tax rate from 35% to 20%, the rate proposed by House Republicans

• A $250-billion increase in public infrastructure investments over 10 years, financed by tax receipts from repatriated corporate profits

• Federal Reserve policy rate increases of 75 basis points in each of the next three years, bringing it to a long-term equilibrium of 3.00% (an upward revision of 25 basis points)

3



With productivity rising, real US GDP growth will outpace employment growth

4


US real GDP and payroll employment

-9

-6

-3

0

3

6

2007 2009 2011 2013 2015 2017 2019

Perc

ent c

hang

e, a

nnua

l rat

e

Real GDP Employment


Indiana’s real GSP growth also outpaces economic growth, indicating higher productivity and wages

5


-6

-3

0

3

6

9

12

15

18

2010 2012 2014 2016 2018 2020

Real GSP Employment

Indiana real GSP and payroll employment

Perc

ent c

hang

e, a

nnua

l rat

e


Key economic indicators for Indiana

6

Percent change

2015 2016 2017 2018 2019

Payroll employment 1.9 1.2 0.8 0.9 1.1

Unemployment rate (%) 4.8 4.7 4.3 4.1 4.0

Wage income 4.8 3.4 4.4 5.1 5.2

Personal income 4.0 3.4 4.2 4.8 4.9

Real gross state product 1.4 1.7 1.9 2.3 2.1

Personal consumption exp. 2.4 3.6 4.7 4.5 4.5

Housing starts (thousands) 16.0 19.0 20.6 21.9 22.7

Share of multi-family (%) 22.6 21.1 20.5 18.4 17.2



Indiana’s job growth lags as some manufacturing gains reversed

7


-3

-2

-1

0

1

2

3

2010 2011 2013 2015 2017 2018 2020

Indiana United States

Indiana employment growth vs. United States

Perc

ent c

hang

e vs

. yea

r-ag

o


Higher productivity, fewer available workers will translate into higher wages

8


-1

0

1

2

3

4

5

6

2010 2012 2014 2016 2018 2020

Indiana United States

Indiana wage growth vs. United States

Perc

ent c

hang

e vs

. yea

r-ag

o


Health care a steady job provider, while manufacturing fell back

9


-8 -4 0 4 8 12 16

ManufacturingProf. & business services

InformationUtilities & miningWholesale trade

Other servicesFinancial services

Federal governmentState & local govt.

Transport & warehousingEducation

Leisure & hospitalityConstructionRetail trade

Health & social servicesChange in Indiana payroll employment, Oct 2015-Oct 2016

Thousands

Job change = 30,200


Peak in vehicle sales will limit further gains in auto manufacturing sector, a major Indiana employer

10


US light-vehicle sales have peaked

0

4

8

12

16

20

1980 1985 1990 1995 2000 2005 2010 2015 2020

Mill

ions

of u

nits

, ann

ual r

ates

Total Cars Light trucks


Professional/business services, construction will supplement further gains in health care sector

11


-5 0 5 10 15 20 25 30 35 40

Other servicesEducation

Federal governmentRetail trade

Utilities & miningFinancial services

InformationWholesale trade

Transport & warehousingManufacturing

Leisure & hospitalityState & local govt.

ConstructionHealth & social services

Prof. & business servicesChange in Indiana payroll employment, 2016q2-2019q2

Thousands

Total change = 87,850


Job growth concentrated in Southeast and West, following migration patterns

12


Employment growth, 2017 vs. 2016

Percent-0.5 - 0.0 0.1 - 0.7 0.8 - 1.2 1.3 - 2.0 2.1 - 3.3

Indiana 0.8%US avg. 1.3%


Continued economic growth will require more workers – many states need increased participation

13


58

60

62

64

66

68

70

72

1980 1985 1990 1995 2000 2005 2010 2015 2020

United States Indiana

Labor force participation rate beginning to increase

% o

f pop

ulat

ion

age

16 &

over


Indiana population growth relatively slow, but outpacing most neighboring states

14


Population growth through 2021

Percent0.0 - 0.40.5 - 0.60.7 - 1.01.1 - 1.9


Home-building increasing steadily in Indiana, but certainly not booming

15


05

101520253035404550

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Multi-family Single-family

Indiana housing starts continue their gradual rebound

Thou

sand

s,an

nual

ized

rate


Consumer spending moving away from items subject to sales and use taxes

16


0

50

100

150

200

250

300

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Health care services Services ex. Health care Non-durable goods Durable goods

Personal consumption expenditures continue trend toward services

Bill

ion

dolla

rs


Bottom line for Indiana• Wage and salary income growth gets a boost from higher average

wages, even as job growth slows, as productivity increases

• Continued increase in labor force is key to attracting and retaining employers and sustaining state economic growth> This is difficult for states with slow population growth> Achieved through in-migration and increased participation

• Manufacturing still a key component of state’s economy, but gains in output won’t translate into much job growth> Out-migration of jobs is one factor, but automation still looms> Strong dollar will weaken competitiveness in global markets

• Service sector can be supported by strong education system, attractive business environment> High-tech sectors showing growth and innovation

17



Forecast track record

18

Percent change

U.S. GDP Indiana Employment Indiana Income

Forecast date 2015 2016 2015 2016 2015 2016

Dec 2014 2.7 2.5 1.7 1.3 4.0 4.5

Dec 2015 2.5 2.7 2.2 1.5 3.8 4.1

Apr 2016 2.4 2.1 1.9 1.7 4.0 3.7

Dec 2016 2.6 1.6 1.9 1.2 4.0 3.4



US economy “appendix”

19



US economic growth will strengthen

• A more-balanced US expansion is emerging in late 2016, with personal consumption, fixed investment, and government spending all rising.

• Consumer spending will increase at a moderate pace, sustained by growth in employment, real incomes, and household net worth.

• Business fixed investment has made uneven progress but could benefit from an improving tax and regulatory environment.

• With demand outpacing supply, housing markets continue to recover.

• Fiscal stimulus, accelerating prices and wages, and strengthening loan demand will lead to higher interest rates.

• With commodity prices recovering and labor costs accelerating, inflation and interest rates will rise.

20



US economic growth rebounds in 2017 and 2018, as consumer spending and business investment lead

21



Job growth slows as US approaches full employment, while inflation picks up

22



Retail gasoline prices are beginning to recover

23


Retail gasoline price and annualized spending on motor fuels

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Thou

sand

dol

lars

/hou

seho

ld

Dol

lars

/gal

lon

Retail gasoline price Spending on motor fuels per household (right scale)


Renewed strength in dollar will make U.S. exports less competitive in world markets

24


Real trade-weighted dollar index peaks at end of 2017

0.6

0.8

1.0

1.2

1.4

1.6

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Inde

x, 2

009

= 1.

0

Major trading partners Other important trading partners


Surpluses in services trade partially offset US deficits in merchandise trade

25


US net exports, NIPA

-1000

-800

-600

-400

-200

0

200

400

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Bill

ions

of d

olla

rs, a

nnua

l ra

tes

Goods and services Goods Services


Interest rates will rise as the Federal Reserve normalizes monetary policy

26


Key interest rates

0

2

4

6

8

10

12

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Perc

ent

Federal funds 10-year Treasury 30-year mortgage BAA corporate

indiana economic outlook - in.gov · 12/15/2016 · indiana economic outlook presented to: indiana...

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